KBC Sunset Market Commentary 23/06/2025 via Trader Talent

Daily Market Overview

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Markets

•          Global markets were unable/unwilling to draw firm conclusions from the US joining Israel in attacking Iranian nuclear facilities. The nature/force of the Iranian retaliation now serves as a next event risk for markets. (Asian) equities mostly showed modest losses. Dollar gains initially were rather limited and a spike of Bent oil above $80 p/b soon eased back to the $78 area. European yields initially added 3-4 bps probably as higher oil prices were seen as removing an important factor behind recent mild inflation. Later in the session, markets gradually moved to what in some way looks like a ‘classical risk-off’ positioning, maybe as Israeli attacks on Iran continue. US Treasuries and the dollar (modestly) outperform. US yields in the run-up the US PMI’s are ceding 2.0 -4.0 bps across the curve after opening marginally stronger. German yields also reversed their initial rise, easing between 0.5 bp (2-y) and 2.0 bps (30-y). In this kind of ‘international’ geopolitical uncertainty (with higher oil prices) the dollar and Treasuries apparently still attract some (safe haven?) flows, contrary to what is the case when US trade policy or fiscal sustainability is in focus. This ‘classical’ risk-off move is best illustrated by the moves on FX markets. The dollar gains against the likes of the yen (USD/JPY 147.4 from 146) and the euro (EUR/USD 1.147 after briefly returning north of 1.15 at the start of European dealings). Most smaller, cyclical currencies also suffer against their reference currencies as the case for the likes of the Aussie (0.638), kiwi (0.589) and Canadian dollar (1.379) against their US counterpart. To a lesser extent this also applies for the SEK, (EUR/SEK 11.16), NOK (EUR/NOK 11.67) and CE currencies. EUR/CHF trades little changed near 0.938). The Eurostoxx 50 cedes 0.5%. US indices open marginally softer.
•          (EMU) PMI’s normally are one of the more timely pointers on  the economy, but persistent event risk permanently lowering visibility also causes these indictors lose some of their market relevance. The outcome also didn’t yield any big surprises. The EMU composite index again showed a marginal expansion in business activity (50.2) resulting from a stabilization in services and a modest rise in manufacturing production (51.0). New orders neared stabilization in June after a protracted period of decline. Employment was up marginally, supported by the services sector. The pace of input cost inflation eased for the fourth consecutive month and was softer than the series average. A fall in manufacturing input costs contrasted with continued strong inflation in the service sector and this trend was also visible in selling prices. On the positive side, June saw an improvement in business confidence, with sentiment up to the highest since January. Germany returned to growth (50.4) but France continues to lag (48.5 from 49.3). Overall this still very much looks like a muddling through scenario, with the ECB allowed to take more reactive approach after reducing the policy rate back to neutral (2.0%) early this month.
•          At the time of finishing this report, the US PMI’s are reported marginally stronger than expected (composite PMÏ 52.8 from 53.0 vs 52.2 expected). Both services (53.1 from 53.7) and manufacturing (52.0 unchanged) indicated ongoing growth. The initial market reaction is limited.
 

News & Views

•           UK’s composite June PMI improved from 50.3 to 50.7, suggesting a marginal upturn in business activity which was carried by the services sector (51.3 from 50.9). Manufacturing remained mired in contraction territory but the downturn was less outspoken than in May. Companies reporting a rise in activity referred to improving order books and a partial rebound in client confidence from the April (post-Liberation Day) low point. Global trade tensions and rising geopolitical uncertainty were mentioned as headwinds, in particular by the manufacturing industry. New business intakes across the economy rose, be it fractionally, for the first time since November 2024. Export orders decreased for the eight month running, but those for the goods sector did so at the slowest pace in five months. Employment decreased again and faster than in May on strong cost pressures and subdued demand conditions. Input price pressures subsided in June, especially in the services economy, resulting in the softest rise of output charges since January 2021. Business expectations for the year ahead drifted down from May’s six-month high on elevated global economic and political uncertainty. The PMIs for all of Q2 suggest GDP rising at a mere 0.1% q/q. The pound erased earlier, though minor gains to trade slightly weaker on the day. EUR/GBP trades around 0.8565.
 

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